MEASURING EFFICIENCY OF WORKING CAPITAL MANAGEMENT: INDEX METHOD

Abstract

Effective working capital management is of great importance for the firms in order to carry out their daily operations flawlessly, to ensure adequate profit, to avoid the difficulty in paying debts and to have a high competitive power against competitors in the sector. When analyzed on sectoral basis, it is seen that the retail sector needs a large amount of working capital to perform its daily operations. Additionally, it is a must for effective working capital management, especially in the retail sector, to determine the amount of current assets and current debt in an optimum level and to make the right decisions about the proportion of the total assets to be composed of current and fixed assets. At this point, the main purpose of this study is to determine the working capital management efficiency levels of the firms listed on Borsa Istanbul (BIST) Retail Trade sector. In order to achieve this purpose, 8 listed firms are analyzed for the period from 2010 to 2019 by using Index method developed by Bhattacharya (1997). In this method; firstly performance index, utilization index and efficiency index values are calculated as the basic components of this method, and then the working capital management efficiency levels of the analyzed firms are determined. The obtained findings show whether firms are performing an effective working capital management. According to these findings; some suggestions are made regarding the current assets, liabilities and sales levels of the firms. This study gives a different perspective by using the Index method instead of considering cash conversion cycle (traditional working capital management efficiency index) in the measurement of the working capital management efficiency across the Turkish retail industry.

Keywords

• Working Capital Management
• Efficiency
• Index Method

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